In May of 2011, I first wrote about caregiver contracts. Things have changed since then, so I have decided to revisit the subject.
Many people are willing to care for a parent or loved one without any promise of compensation. They are to be commended for making such a sacrifice. Even so, a growing number of people are entering into caregiver contracts (also called personal service or personal care agreements) with their family members because of practical reasons. Having such a contract rewards the family member doing the work. It can help alleviate tension between family members by making sure the person who provides the care for an elderly parent is fairly compensated. In addition, it can be a be a key part of Medicaid planning, helping the elder to spend down savings in order to more easily qualify for Medicaid long-term care coverage, when and if the time comes that it is no longer possible to provide adequate care at home. There are also some downsides and pitfalls.
The following are some of the things to keep in mind when entering into a caregiver contract:
●Meet with your elder law attorney. Consult with an elder law attorney to obtain assistance in drafting the contract, especially if qualifying for Medicaid is a goal. Medicaid caseworkers have criteria that they consider when they scrutinize caregiver contracts. If you download a contract from the internet or purchase one at a stationery store, you get a boilerplate document that is written for the general public and is not state-specific. These documents come with no instructions or advice. Some of them come with a warning that you should use it only after consulting with an attorney. Elder Law attorneys know what must be included in the contract, what should not be included in the contract, and they know the gray areas as well. Having caregiver payments disallowed because you drew up a home-made contract with that omitted important provisions can result in the imposition of a period of ineligibility of benefits. Not a good thing.
●Caregiver's duties. The contract should set out the caregiver's duties. These can be anything from driving to doctor's appointments and attending doctor's meetings to grocery shopping to help with paying bills to preparing meals, supervising the taking of medications, preparing meals, helping with bathing. The length of the term of the contract can be for the elder's lifetime, which makes it important to cover all possibilities, even if they are not currently needed. The contract can continue even if the elder enters a nursing home, with the caregiver acting as the elder's advocate to ensure the best possible care. The duties cannot, however, overlap with services that are to be performed by others, unless the caregiver pays for those services. Think about it logically. If a parent pays a child a lump sum of money per day or per week for care (and that amount equals the going rate in the area), but an aide is hired to work three days a week for two hours to perform duties that should be part of the rate for a full-time caregiver, there is an overlap. If you were hiring two people to care for an elder on a part-time basis, you would not pay one else to perform services for which you were paying the other. Medicaid will not allow payment for duplication of services either. This type of mistake can result in the imposition of a period of ineligibility of benefits.
●Payment. Payment to the caregiver can either be made in a lump-sum or in weekly or monthly installments. For Medicaid purposes, it is very important that the pay not be excessive. Excessive pay can be viewed as a gift for Medicaid eligibility purposes. The pay should be similar to what other caregivers in the area are making, or less. Lump-sum payments are usually based on a monthly rate, multiplied by the elder's statistical life expectancy with a present value calculation, as well as other considerations. This is a dangerous area to go without competent legal advice. Medicaid goes over lump sum payments with a fine tooth comb and will disallow any amount it feels is excessive. You may do your calculations by the book only to find out that Medicaid disallows the payment on grounds that the elder’s statistical life expectancy was unrealistic because he/she has a terminal illness and is not likely to live until the age suggested by an actuarial chart. Whether Medicaid’s position on any given issue is valid is often irrelevant. The only remedy for challenging an incorrect decision is to go through the administrative process of a “fair hearing.” This can be expensive, particularly for individuals who are spending their assets down, as well as frustrating. I have discussed the administrative process in previous articles and generally refer to it as the “Unfair Hearing” because the Director of the Division of Medical Assistance and Health Services (“DMAHS”), who is responsible for the initial Medicaid determination gets to review and either uphold, modify or overturn the decision of the administrative law judge.
●Taxes. Keep in mind that there are tax consequences. Money paid to a caregiver is income. The caregiver is required to pay taxes on the income he or she receives. The elder may be required to withhold taxes. Failure to do so may be a violation of both State and Federal law. If there is no obligation to withhold, there is a requirement to provide a 1099 form to the caregiver and file it with the IRS. Failure to do so can result in disallowance of the payment, which results in a penalty, which translates into periods of ineligibility. A caregiver called me not long ago to say her accountant had questioned why we had executed an agreement that caused her to have tax liability for the money being paid to her by the elder for whom she was giving care. I reminded her that she and the elder had entered into an equitable arrangement for care and that she was being paid for her services. We did what the law requires, and no one has to worry in the future that the law was broken. If there is a Medicaid application at some future time, the elder will not have to explain away payments made for her care.
●Cash Payments/Illegal Aliens. Some caregivers insist on receiving payment in cash. Without considering the consequences, the family obliges because there is less paperwork, and the cost may be less than using a licensed agency. The caregiver may want cash because she is an illegal alien and has no Social Security number. Hiring illegal aliens is a violation of the immigration laws. In addition to having the payment disallowed, it is possible that there might be criminal sanctions. “How,” you may ask, “does Medicaid know there are violations going on?” The answer is easy. Weekly checks for $1,000 are easy to spot. Medicaid caseworkers want back-up for every check of $1,000 or more. If you can’t prove the check was for a caregiver, the payment may be denied. To a trained eye, checks for repetitive amounts, even if under $1,000, raise a red flag and can be questioned. At the very least, checks should be made payable to the caregiver. Obtain the name, address and Social Security number of the caregiver, and write on the face of the check, in the lower left corner, that it was issued to a caregiver. That may not be enough in some New Jersey counties, but it will be acceptable in others.
●Licensed Agencies. Although licensed agencies may cost more than a private caregiver who is paid under the table, there are distinct advantages. Payments to an agency need no further scrutiny. The agency is responsible for insuring that its employees have a legal right to be employed. It withholds and pays taxes. In most cases, its employees are bonded. If the employee caregiver fails to report to work, the agency provides a replacement, usually without a gap in service. If a caregiver is not working out, the agency must provide a replacement. Agencies offer different levels of care, depending on the needs of the patient. In the long run, the price differential may be small or non-existent. Make sure, however, that when you deal with an agency, it is not just a referral source where you pay the caregiver directly.
●Other sources for payment. If the elder does not have enough money to pay his or her caregiver, there may be other sources of payment. Long-term care insurance policies can have provisions to pay for homecare, even if the caregiver is a family member. There are some New Jersey Community based benefits that, on their fact, provide help for a certain number of hours a few days each week. Unfortunately, in December 2014, the Medicaid regulations in New Jersey were changed, opening up eligibility to many more individuals. Unfortunately, the Legislature has not allocated additional funding commensurate with the need. As a result, community-based funding is less than before.
●Veteran’s Benefits. Another possibility is veteran’s benefits. There are many veterans and their spouses who are entitled to “aid and attendance” benefits and don’t realize it. Sometimes, the combination of veteran’s benefits, Social Security and modest savings are enough to allow a veteran or the veteran’s widow to remain home with a caregiver rather than in an institution.
●Retroactive Agreements. In a word: “FUGEDDABOUDIT!” There was a time you could get away with drafting an agreement and making it retroactive to an earlier date to cover services performed in the past. Medicaid now has a policy that caregiver agreements can be prospective only. The best we were able to accomplish in recent years was a 10-day retroactive period because the recipient agreed to an arrangement, but I was not able to draft the agreement, have it reviewed and modified and then signed for 10 days. Of course the fact that the parties signed a brief memorandum of understanding at the outset did not hurt.